Ramaco Resources' (NASDAQ:METC) Weak Earnings May Only Reveal A Part Of The Whole Picture

The subdued market reaction suggests that Ramaco Resources, Inc.'s (NASDAQ:METC) recent earnings didn't contain any surprises. We think that investors are worried about some weaknesses underlying the earnings.

See our latest analysis for Ramaco Resources

One essential aspect of assessing earnings quality is to look at how much a company is diluting shareholders. Ramaco Resources expanded the number of shares on issue by 19% over the last year. As a result, its net income is now split between a greater number of shares. Per share metrics like EPS help us understand how much actual shareholders are benefitting from the company's profits, while the net income level gives us a better view of the company's absolute size. You can see a chart of Ramaco Resources' EPS by clicking here.

How Is Dilution Impacting Ramaco Resources' Earnings Per Share (EPS)?

Ramaco Resources was losing money three years ago. Even looking at the last year, profit was still down 29%. Sadly, earnings per share fell further, down a full 33% in that time. And so, you can see quite clearly that dilution is influencing shareholder earnings.

In the long term, if Ramaco Resources' earnings per share can increase, then the share price should too. However, if its profit increases while its earnings per share stay flat (or even fall) then shareholders might not see much benefit. For the ordinary retail shareholder, EPS is a great measure to check your hypothetical "share" of the company's profit.

That might leave you wondering what analysts are forecasting in terms of future profitability. Luckily, you can click here to see an interactive graph depicting future profitability, based on their estimates.

Our Take On Ramaco Resources' Profit Performance

Ramaco Resources issued shares during the year, and that means its EPS performance lags its net income growth. Therefore, it seems possible to us that Ramaco Resources' true underlying earnings power is actually less than its statutory profit. Sadly, its EPS was down over the last twelve months. Of course, we've only just scratched the surface when it comes to analysing its earnings; one could also consider margins, forecast growth, and return on investment, among other factors. If you'd like to know more about Ramaco Resources as a business, it's important to be aware of any risks it's facing. To that end, you should learn about the 4 warning signs we've spotted with Ramaco Resources (including 1 which makes us a bit uncomfortable).

This note has only looked at a single factor that sheds light on the nature of Ramaco Resources' profit. But there is always more to discover if you are capable of focussing your mind on minutiae. For example, many people consider a high return on equity as an indication of favorable business economics, while others like to 'follow the money' and search out stocks that insiders are buying. So you may wish to see this free collection of companies boasting high return on equity, or this list of stocks that insiders are buying.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.